Initial construction increased to a seasonally-adjusted annual rate of 590,000 last month, up 0.5 percent above a revised 587,000 in October.

New construction of single-family homes rose increased 3.9 percent to an annual rate of 501,000 against 482,000 in August.

The credit now can be claimed by anyone buying a home who has not owned one for three years and who closes the deal by November 30. Congress is considering extending the program deadline and expanding it to serve more homebuyers.

Even with the overall housing starts drop, multi-family homes increased. New construction of buildings with 5 or more units increased to an annual rate of 104,000 in September which is 7.2 percent above August figure of 97,000 units.

Applications for building permits, which can be the basis to predict future construction activity dropped 1.2 percent to a seasonally adjusted annual rate of 573,000.

Economists were expecting permits to rise to 595,000. New home construction was flat in the Northeast, holding at a 62,000 unit rate, and in the Midwest at 100,000 units. Home starts declined 1.7 percent in both the South and the West.